Business, 22.04.2020 05:01, AnActualTrashcan

Simons Industries has just borrowed $1 million by issuing 20-year bonds. The company’s cost of debt is 5% so it will need to pay $50,000 in interest each year for the next 20 years and then repay the principal of $1 million in year 20. The company’s marginal tax rate is 30%. How much should the interest tax shield increase the value of Simons?

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Simons Industries has just borrowed $1 million by issuing 20-year bonds. The company’s cost of debt...